🚂 Norfolk’s mess raises alarms
Hey Snackers,
Sotheby’s is selling the handwritten lyrics to “We Are the Champions” and other Freddie Mercury treasures in a $7.4M estate sale. Also on the auction block: his Tiffany mustache comb, rotary phone, and [checks notes] vest covered in images of cats.
The Nasdaq ticked up yesterday on better-than-feared earnings from Microsoft and Google parent Alphabet. Meta spiked after surprising investors with its first quarterly sales growth in a year. Amazon reports today.
Norfolk Southern puts a price on its Ohio derailment as rail safety practices come under greater scrutiny
Track record… Yesterday, Norfolk Southern said that the February derailment of one of its trains — which spilled toxic chemicals into a small Ohio town — would likely cost the company $387M, or about 12% of its profit last year.
Cleaning up: The price tag includes $31M pledged to help local residents recover. So far, Norfolk said it’s spent $55M removing contaminated soil and water.
Lawyering up: That includes legal fees, because Norfolk faces lawsuits from the DOJ, Ohio, and shareholders, among others.
The issue runs deeper… than just one spill. The National Transportation Safety Board launched a special investigation into Norfolk’s general safety practices. The company’s workforce has shrunk by almost 40% since 2012, a steeper drop than that of rivals BNSF, CSX, and Union Pacific. From 2013 to 2022, Norfolk’s accident rate spiked more than 80% — nearly 3X the industry average. The Ohio disaster has led to greater scrutiny of the rail industry’s safety practices.
Accidents up: In the past decade, the seven major US freight railroad operators have had 27% more accidents. Lawmakers and safety officials point to an industry-wide strategy called Precision Scheduled Railroading, or PSR, as a reason for declining safety.
Profits up: PSR aims to boost profits by cutting costs and increasing efficiency through measures like lengthening trains (some up to 3 miles long), shrinking staff, and cutting inspection times.
Financial efficiency can hurt operational efficiency… Since 2010, rail companies have paid shareholders almost $200B through dividends and stock buybacks. While PSR has helped rail corps haul in record profits, it’s also led to widespread safety problems and worker dissatisfaction. In December, President Biden blocked a nationwide rail strike that would’ve cost the US $2B/day.
Big foodies flaunt “pricing power” as consumers stomach higher costs (for now)
From Big Macs to Kraft mac… Americans aren’t giving up their comfort-food staples. Big food companies have crushed earnings expectations as consumers keep paying up to eat up, despite significant price hikes. It’s a theme:
McDonald’s beat estimates as US traffic grew for the third straight quarter, amid higher McMenu prices and inflated nuggets. Global same-store sales grew 13%.
Chipotle saw stronger-than-expected traffic and sales growth, while the burrito legend’s prices are up 10% from a year ago (guac = extra extra).
Nestlé, the world's largest food company, also grew sales after hiking prices by about 10% as folks kept grabbing its Kit Kats, Hot Pockets, and "Nes" products (’presso, ’café, ’quik).
Pepsi lifted its annual sales forecast as demand for products like Gatorade, Cheetos, and Doritos stayed strong — after it raised prices by 13%.
Coke had bubbly results, too, as higher prices and rising demand fueled its bev sales.
I’ve got the (pricing) power… Pricing power = how much companies can raise prices without hurting demand. Food companies are flexing that power by showing that consumers are willing to pay more for their goodies, from brand-name sodas like Coke to affordable splurges like Egg McMuffins. Even during economic downturns, people tend to hold on to these little treats.
Pricing power has its limits… because budgets can stretch only so far. McD’s said that diners in some markets have pushed back more than anticipated against higher prices, and customers are ordering fewer items. Coke noted signs of shifting buying habits, and said it plans to slow price hikes this year. As US retail spending dips, corporate price bumps could flatten.
Microsoft’s $69B Activision takeover is in jeopardy after UK regulators blocked the potentially historic gaming deal
Game changer… Yesterday, UK regulators said they’d block Microsoft's $69B acquisition of Activision Blizzard, worsening the chances of the deal’s approval. Microsoft’s bid to buy the Call of Duty maker (which would be the largest tech deal ever) has been on ice as regulators worry the merger would hurt competition. The Xbox maker has struck deals with rivals like Nintendo and Nvidia to share its gaming treasures to win support for the Activision-quisition.
Stiff odds: The FTC is still evaluating the merger after suing to block it in December, and the EU is set to make a formal decision next month.
High stakes: Microsoft’s already planning to appeal the UK’s decision, but if it fails (or if other regulators nix it) it’ll owe Activision $3B in break-up fees.
Cloud cover… By some estimates, Microsoft already controls 60%+ of global cloud-gaming services, and its Xbox Game Pass has 25M+ subscribers. For reference: Sony's PSNow cloud-gaming service had just 3M subs before it was replaced last year. Now regulators argue that Microsoft's ownership of Activision's billion-dollar franchises (like: Call of Duty, World of Warcraft) would make it tougher for others to compete.
Buyers, beware… The UK’s decision is a rare win for supporters of Big Tech regulation, and it could prompt more crackdowns in the US, where major antitrust rulings have been scarce. As governments get tougher on protecting competition, tech biggies may have to revisit their M&A strategies, or risk losing billions if they fail.
What else we’re Snackin’
Liked: Meta stock popped 12% after it posted unexpected sales growth thanks to more ads. But profit plunged by nearly $2B as its metaverse biz kept bleeding cash and layoffs meant high severance costs.
Lotus: Pack your Portia fits: Hilton beat expectations and gave sunnier guidance as vacay demand stayed strong. Hotel bookings are up 4X from last year and airlines are eyeing a summer surge.
Shh: To ease privacy concerns, OpenAI said it’ll let ChatGPT users opt out of having their prompt history used for AI training and is working on a biz subscription that won’t study users’ data (think: company secrets).
Pullup: Target is rolling out curbside returns, so you won’t need to pause your pod to unload impulse-bought blenders. Since the pandemic, consumers haven’t curbed their enthusiasm for parking pickup.
Understellar: Japanese space startup Ispace's rover “made a hard landing” (ahem, crashed) into the moon. It would’ve been the first private company to touch down on the lunar surface.
Thursday
- Earnings expected from Amazon, Mastercard, American Airlines, Pinterest, Eli Lilly, Merck, Domino’s, Southwest Airlines, Hertz, Hasbro, Northrop Grumman, AstraZeneca, Comcast, Keurig Dr Pepper, Capital One, Crocs, T-Mobile, Activision Blizzard, Caterpillar, and Snap
Authors of this Snacks own shares of: Alphabet, Amazon, Comcast, Microsoft, Nvidia, and Snap